FXStreet (Bali) - Richard Koo, chief economist at Nomura Research Institute. shares his personal view as to why BoE and Fed should be prudent about the timing of the first rate hike.

Key Quotes

"I suspect one reason why both the BOE and the Fed are hesitant to adjust monetary policy in spite of sharp recent improvements in the unemployment rate lies in the past experiences of the BOJ and the ECB."

"The BOJ’s decision during the IT bubble in 2000 to raise the policy rate from zero to 0.25% was heavily criticized by monetary policy “true believers” in both Japan and the West as having prolonged the recession. The ECB, too, raised rates in 2010 but has since been forced by weakness in the real economy to take interest rates down to, and now below, zero."

"These examples suggest the BOE and the Fed may be of the view that being too late is better than being too early when it comes to tightening monetary policy."

"The aforementioned decisions by the BOJ and ECB, however, were made at a time when neither bank was engaged in quantitative easing. Today’s environment is very different, with the Fed, the BOE, and the BOJ all having undertaken extensive QE programs."

"I think the markets—and particularly the long-term bond markets—could crash if the monetary authorities are perceived as falling behind the curve on inflation at a time when there are already massive excess reserves in the banking system."

"If central banks in the UK, the US, and Japan focus excessively on the earlier tightening decisions of the BOJ and ECB—which in retrospect were probably too early—and end up waiting too long to tighten, they could cause tremendous damage in the long-term bond markets."

Related Articles
  1. Forex Education

    Four Currencies Under the Spotlight in 2016

    With currencies having become the “tail that wags the dog,” in terms of their impact on the global economy, these four currencies will be under the spotlight in 2016.
  2. Forex Fundamentals

    These Currencies Are The Biggest Losers Of The Stock Downturn

    Here’s a list of the hardest-hit currencies amid the global stock market mayhem.
  3. Forex Strategies

    Will the Euro Continue to Rally? (EUO)

    The euro is rallying. Should investors chase this performance or is the real opportunity on the other side of the trade?
  4. Investing News

    China’s Forex Reserves Dropped Significantly

    China’s forex​ reserves dropped by a record $93.9 billion at the end of August to $3.56 trillion because the Central Bank has been selling dollars to provide a cushion to the falling yuan​
  5. Forex

    The Pros and Cons of a Fully Convertible Rupee

    Amid the rising economic power of India, the talks of making the Indian currency fully convertible are gaining momentum. We look at the pros and cons.
  6. Forex Fundamentals

    Chinese Yuan an Unlikely Reserve Currency

    As the world's second largest economy, China's challenge to America’s dominance includes a push to make the yuan (RMB), the world’s reserve currency. Whether it can do that now is unclear.
  7. Economics

    How Currency Enforcement Helped Sink The Trans-Pacific Partnership (TTP)

    One particular barrier to trade that has received much attention of late and caused delays in negotiations of the TPP is exchange-rate manipulation, by which a country artificially devalues its ...
  8. Forex

    Top U.S Forex News Sites

    Breaking news moves forex markets. Here are the top U.S. sites for tracking forex news.
  9. Investing

    Financial News Comparison: Bloomberg Vs. Reuters (BAC, GOOG)

    Access to financial information has grown with the expansion of digital news. Bloomberg and Thomson Reuters lead the pack, claiming a majority of the business information market.
  10. Economics

    Who Benefits From South Korea's Lowered Interest Rates?

    South Korea is the latest country to cut interest rates in an attempt to stimulate economic growth.
Trading Center